HOPE for Homeowners

What Was HOPE for Homeowners?

HOPE for Homeowners refers to a federal aid program designed to help homeowners in financial distress as a result of the collapse of the subprime mortgage market in 2008. Backed by the Federal Housing Administration (FHA), the HOPE for Homeowners Act was one of the steps taken by the U.S. government to help stabilize the housing market and protect qualified homeowners from loan default and foreclosure. The program was active for roughly three years and ended in September 2011.

Understanding HOPE for Homeowners

After the tech bubble burst, the American economy began to experience growth. Interest rates were at historic lows, and real estate prices were dropping. This led to an increase in demand for homes and mortgages, causing a boom in the housing market. Lenders began relaxing their lending requirements, allowing consumers who otherwise wouldn’t qualify for mortgages to take out high-risk loans.

But when the market crashed, it led to one of the biggest recessions in history. A rise in interest rates and real estate values caused many homeowners to default on their monthly mortgage payments. That’s when the federal government stepped in to help.

The HOPE for Homeowners program was part of the Emergency Economic Stabilization Act of 2008, which became law as the subprime mortgage crisis peaked in October of that year. Part of the law required the government to provide federal loan guarantees and credit enhancements for homeowners who found themselves in financial distress. The program aimed to allow homeowners to refinance into affordable, 30-year fixed-rate mortgage loans.

What Did the HOPE Loan Program Do?

The HOPE Loan program was intended to make homeownership affordable and sustainable for borrowers who were having difficulty paying their mortgages during the financial crisis. Specifically, this aim was to be achieved by refinancing existing loans, including subprime mortgages, into FHA-backed loans. The FHA promised to guarantee new mortgage loans up to $300 billion as part of the program.

For borrowers who refinanced under HOPE for Homeowners guidelines, lenders were required to write down the size of the mortgage to a maximum of 90% of the home’s new appraised value. The ultimate goal in doing so was to allow borrowers to avoid foreclosure and stay in their homes.

HOPE for Homeowners Eligibility Requirements

Eligibility for the HOPE Loan program was limited to certain borrowers. To qualify for the program, homeowners had to meet the following requirements:

• Properties were required to be owner-occupied and the owner’s primary residence; second homes and vacation properties didn’t count.
• The original mortgage had to be dated on or before Jan. 1, 2008.
• They could not have defaulted on the original loan intentionally.
• They could not be invested in multiple home loans.
• All information on the original mortgage was true and verified, including income sources and job details.
• They could not have been convicted of fraud.

Participation in the program was voluntary, so homeowners needed to apply to take part. Similarly, not all lenders took part in HOPE for Homeowners, but those that did were FHA-approved.

HOPE for Homeowners Mortgage Terms

The HOPE for Homeowners program issued certain guidelines for the terms and conditions of mortgage write-downs. Specifically, the program dictated that:

• Loan amounts for eligible borrowers could not exceed a nationwide maximum of $550,440.
• The new mortgage could be no more than 90% of the new appraised value, including any financed up-front mortgage insurance (UFMI) premium, with the lender writing down the current mortgage to that amount.
• The UFMI premium was capped at 3%, and the monthly mortgage insurance premium (MIP) was capped at 1.5%
• Holders of existing mortgage liens were required to waive prepayment penalties and late-payment fees.
• The existing first mortgage was obligated to accept the proceeds of the new loan as full settlement of all outstanding indebtedness.
• Existing subordinate lenders were required to release outstanding mortgage liens.
• Borrowers had to pay closing costs in line with standard FHA rules, but they had the option to finance them into the loan, pay them from their own assets, request payment of these costs by the servicing lender or a third party, or request payment of them by the originating lender.
• Borrowers were prohibited from taking out a second mortgage for the first five years of the loan, except under certain circumstances for emergency repairs.

The new mortgages had a 30-year term. Interest rates were determined on a case-by-case basis.

Pros and Cons of HOPE for Homeowners

The HOPE for Homeowners had advantages and disadvantages. On one hand, it was designed to help homeowners who were struggling to keep up with mortgage payments following the fallout from the 2008 financial crisis. On the other hand, it was criticized as a “too little, too late” measure because it did little to address the root causes of the subprime lending crisis.

Special Considerations

As mentioned above, program participants received a 30-year fixed-rate mortgage. In some cases, that 30-year loan was eligible for an extension. Extending to 40 years was helpful in cases where the homeowner had to carry a particularly large amount of debt, which was an issue for many homeowners. Therefore, the 40-year option allowed for a lower monthly mortgage payment.

Equity Sharing

Homeowners also had to agree to an equity-sharing program. In this case, equity was the difference between the amount of the original loan and the actual value of the home. If the home was sold or refinanced after the homeowner accepted assistance from the HOPE for Homeowners program, any equity gained had to be shared with the FHA. How much the government received was contingent on how long the homeowner waited to sell or refinance.

If a sale occurred in the first year of participation in HOPE for Homeowners, the government received 100% of the equity. Any equity earned after year two was divided on a sliding scale. So, if a homeowner sold their property in the second year after refinancing, they were allowed to keep 10% of the equity, while the FHA got 90%. In the third year, the split was 20% for the homeowner and 80% for the FHA, and so on. After the fifth year, the homeowner and the FHA split the equity 50/50.

The Bottom Line

The HOPE for Homeowners program was intended to provide financial relief for homeowners who were having difficulty paying their home loans from 2008 to 2011. This program allowed eligible borrowers to refinance subprime and other mortgages into FHA loans. While it’s no longer operational, homeowners can still get mortgage relief through other federal programs. Talking to your lender can help you to weigh your options if you’re challenged with making mortgage payments.